Moving up the property ladder

[want2findout]

I bought a property 3 years ago for �40,000. My mortgage on this property is �45,000 and the house has recently been valued at �90,000. My partner also has a property which has been valued at �110,000 (Mortgage - �65,000).

I have recently moved in with my partner but we're basically looking to move up the property ladder and also invest for the future.

Any suggestions?

Rent my house out? Rent both houses and buy property together i.e. take out new mortgage?, sell both houses and use profit as large deposit on new house, keeping mortgage to minimum? sell both houses, keep some of profit made and invest elsewhere, buy larger property together?

Also, if I do sell my house now will I have to pay interest on profit made?

Thanks.

[dozzell]

This in part is an impossible question as no-one really knows whats going to happen to the property market (except maybe Gordon Brown). People and banks make predictions, but anyone who says they know is lying or mis-informed. So you need to break it down into stages (cue War & Peace...)

Combined you have equity of �110,000, yet live in a property which is worth �110,000 and are paying a mortgage. This is not sensible, so, out of the choice of living mortgage free or moving up the ladder, you decide that you want to move up the ladder, which is sensible. Easy part done.

Now, with Interest rates being some of the lowest we've ever seen, borrowing money is cheaper now than it has been for some time. This will change, just no-body knows when it will change.

So, it sounds like you could sell both houses and buy a larger property whilst only funding a small portion of it with a mortgage. This is good as it means that because you are borrowing a low amount in comparison to the new propertie's value you'll be able to get a better deal, probably a lower interest rate. Also, if/when things do go bad, you own a bit chunk of your home and can probably weather the storm without getting reposessed.

Only you can decide wether or no to hold some equity back to invest in a buy to let property, and this decision needs to be based on what prices in your area are doing.

Buy to let in an area with inceasing prices = good. Gennerally the prices would be incresing quicker than the bank would pay you interest.

[dozzell]

cont....

Buy to Let in an area with static prices = only good if your going to do it over a long term. You wont make money in the short term, it might even cost you a bit if the property is ever empty, but you can reasonable expect that in 25 years the property you bought would be worth more than you bought it for. (not a good idea if your in your 80's).*

Buy to Let in an area with decreasing prices = bad. At the best you would keep the equity youve got, at worst you could lose it all. Obvious really.

* Quick tip; If you are using a buy to let as a long term investment, use an interest only mortgage. eg you buy now at 100,000 (50k deposit, 50k Mort). You sell in 25 Years time for �200k, you pay 50k back to the lender, and all that time youve been keeping the payments low and hopefully making a bit each month from the rental income.

The biggest guidance is gut feeling, and DON'T STRETCH YOURSELVES!

And no, you wont pay interest on your profit, but check with you lender how much they charge to pay the mortgage back early.

[want2findout]

Thanks for that excellent advice.

[erimus1]

I agree with dozzell's suggestion appart from the fact that she has not allowed that if you rented both your current properties out, you would have to include the income from the renting into the scenario. You obviously have quite a few option, but whichever you choose, you are on a good number.

Isn't it a great idea to live mortgage free though - sell the one property to pay off the mortgage on the other. Have great life for a bit - save some more money up for a deposit on your next property, in say a year or so......

Good luck

[want2findout]

Thanks Erimus

Yes, we have been discussing the matter further and now feel the best option would be to sell my house and use the money to pay off the majority of my partner's mortgage. That way we'll be able to live comfortably for a while whilst also putting some money aside for a rainy day/deposit for the next house.